Challenges Covid-19 presents

The recent spike in Covid-19 cases in the country calls for more strick measures. These measures will affect the business community and their functions. Economist PAUL BARKER talks with The National highlighting the impacts.

ECONOMIST and executive director of the Institute of National Affairs (INA) Paul Barker recently spoke to The National highlighting the impacts of the Covid-19 on the economy
given the recent surge in reported cases. Below is an abstract of the interview.

Question: OK Tedi has temporarily suspended operations while also noting that the country will lose approximately K210 million in forex inflows as a result.
Barker: Yes, this will be a big additional blow to the economy, with loss of needed export earnings, and income to the company and revenue to the State, which is a severe situation, considering that it’s the second major mine to be forced to close in a year, although hopefully only for a few weeks, and it’s the major revenue earning mine.
The mine closed earlier to try and address a few cases of the Covid-19, but since then Covid-19 cases have grown a lot, including amongst the fly in-fly out workers based in Australia, who’ve also been barred from travel to Cairns.

Australia has also stopped commercial flights from PNG.
I understand the daily flights to Brisbane are continuing, but it will require all kinds of protocols to be able to travel on them; they will be used more for the delivery of goods.

Most other businesses have also indicated that they will scale back on operations again.
Yes, it’s widely impacting other businesses; both the outbreak of cases in their workplaces, and extra precautions taken by the firms themselves, even without the extra strictures being imposed by the Government.

From your perspective, how do you see this impacting the country’s economy in general?
In 2020, we had lockdowns, but not apparently any significant numbers of cases, and for some reason the virus seemed to be restrained, if not contained.
This provided a sound platform for low health, education or economic impacts prior to the arrival of reliable vaccines, that hopefully can return life and business back to some form of retuned normalcy, once those at greater risk have been vaccinated, and subsequently once a critical portion of the population are immunised.
However, unfortunately, for whatever reason, (and it seems to have been complacency in the community and lack of adherence to the Covid-19 safety measures, while travelling to home provinces over Christmas, when large social gatherings occurred, as they have for multiple super-spreader events in the new year), the caseload has multiplied, with the second waves during the first three months of 2021, especially February and this month.
It’s also impacted the already fragile and deficient public health service, undermining their capacity to feel safe and perform their critical function.
Unfortunately also, PNG wasn’t on its toes as readily as Fiji and the Solomon Islands, which have already received their first shipments of vaccine under the Covax facility.
PNG missed its intended first receipt in February, which would have usefully protected the health workers, in a timely manner, as well as other front line workers and persons at greatest risk.
Although the Covid-19 poses a relatively low risk for much of the community, notably the young and healthy, it spreads fast and imposes a substantial risk for older persons and those with prior health conditions, such as type 2 diabetes or obesity, which includes a significant number of persons in many age groups.
Business needs to safeguard its employees and whole segments of the economy are particularly affected by even partial lockdowns of travel and gatherings, including the tourism and hospitality industry, which has now been suffering for over a year, putting severe strain on their viability.
In Australia, the tourism industry has survived largely by shifting from international tourism to the domestic market, but the PNG domestic market is relatively small, and the pandemic is still raging here, which it isn’t in Australia or New Zealand, where it was effectively constrained.
Other industries should be less impacted, if the Government, including local authorities, impose control measures but lightly rather than heavy handedly.
It’s crucial that export crops are able to continue to be processed and reach points of export and market, and domestic crops heading for PNG’s towns and cities are also not impeded in their shipment.
The subsidised freight from Lae to Port Moresby in 2020 was useful but the arrangement really needs to be less specific to one route and company.
The price support arrangements introduced by Government are poorly planned and implemented.
The scheme costs a large amount, without any specific duration, sustainability or cost limitation mechanisms.
PNG has a small formal sector, comprising a few larger firms, various mid-scale enterprises.
Its tax base is very low for a country deemed a lower middle income country, severely undermining the Government’s capacity to perform its critical functions.

Will this be far worse than the previous lockdown in terms of its impact on the economy?
Unfortunately, successive Governments have been inclined to think they have greater revenue than they have and spend it on some rather extravagant or unproductive projects or activities, rather than the core public sector functions.
Government also has a habit of procuring goods, such as power plants that either don’t perform, or are for prices well above market levels, and thereby undermine the viability of the State power provider, PPL, and invariably driving up the costs of utilities.
PNG desperately needs to grow its formal sector, to generate jobs, and in turn provide revenue, but that won’t happen if the State continues to push excessive costs on businesses and households in PNG, by uncompetitive power, telecommunications and other infrastructure projects.
Businesses will simply invest elsewhere, or not invest at all, or simply make their money by lending to Government instead to finance its insatiable Budget deficit.
It’s also critical the PNG citizens and businesses have more say in how government uses the money that they provide to Government, to raise accountability and help mitigate waste.
Papua New Guinea does not have the data or system for welfare payments or private sector support utilised in Australia or other developed countries, so it cannot impose the full Covid-19 lockdowns applied in these countries, or severe welfare impacts would occur.
With respect to commodity prices, the recovery of oil, gas and vegetable oil prices (albeit that they have their differences and lags) to pre-pandemic levels, (although far off pre-2014 levels for hydrocarbons) provides some gains for both the businesses and Government, in terms of improved export earning, improved profitability, earlier repayment of project debt for PNG LNG – and hence also the date for enhanced taxation contribution.
On the other hand, gold prices have dropped back substantially from their pandemic peak in 2020, where gold was the safe haven as other markets cascaded.
This is a challenge for the operating companies, although they couldn’t have expected extended prices of US$2,000/oz (K6,866.09/oz).
It also imposes an extra burden on the PJV partnerships and the Government as they need to recapitalise the Porgera mine, hopefully over the next weeks, if they’re wise, rather than leaving it and adding to the risk and cost of rehabilitation.